Ares Buys Stake in OSH Stores

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Ares Management LLC is buying a 19.9 percent stake in Orchard Supply Hardware Stores Corp. for $58.7 million in cash from Sears Holdings Corp.


The L.A.-based private equity firm also has a three-year option to purchase an additional 30.2 percent of Orchard Supply for $126.8 million, Sears said in a statement Friday.


After the initial investment, Hoffman Estates, Ill.-based Sears Holdings will retain an 80.1 percent equity interest in San Jose-based Orchard Supply, which would be reduced to about 49.9 percent should the option be exercised in the next three years.


Orchard Supply is also expected to issue approximately $405 million in debt in connection with the initial investment. Sears’ subsidiary Sears, Roebuck and Co. will receive a dividend from Orchard Supply of around $450 million.


The transaction is expected to close in the fourth quarter, subject to regulatory approval and completion of Orchard Supply’s debt arrangements.


Sears said it was selling stakes in the chain of 84 hardware and garden retail stores located throughout California to focus management attention and capital on its core business of Sears and Kmart stores. Sears bought Orchard Supply in 1996 for about $415 million.


Ares, which has over 90 employees and nearly $7.5 billion of committed capital under management, said in August that it had partnered with Ontario Teachers’ Pension Plan to purchase National Bedding Co., maker of Serta brand mattresses.

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